SANTA BARBARA, CA—With the pace of apartment rental growth moderating in recent months, it stands to reason that eventually the average rent would begin ticking downward on a month-to-month basis. That began happening in September and continued with October, according to data compiled from 123 markets surveyed by Yardi Matrix.

October's average rent was $1,216 per month, a dip of $3 from the previous month. Although Yardi Matrix's latest monthly report, issued Tuesday, “relatively slight,” the decline in rents was the biggest drop in three years, since the average fell by $3 in October 2013. On a year-over-year basis, rents grew 4.4% nationwide in October, a 30-basis-point decline from September and a 230-bp fall from the recent high of 6.7%, in October 2015.

“The decline demonstrates a reversion to more 'normal' rent growth that we forecast at the beginning of the year,” according to the Yardi Matrix report. “Given the seasonal nature of apartment rents, the consistency of growth in recent years represents more of a historical outlier than the current moderation.”

While a number of factors may be contributing to the slowdown in growth, two stand out, according to Yardi Matrix. One is that the outsize annual increases of 9%-plus that were seen in so many metro areas through late 2015 and early 2016 have moderated. Sacramento, which tops the Yardi Matrix survey with 12.1% year-over-year growth, is the only metro to post double-digit annual increases; next up is the Inland Empire with 7.4% Y-O-Y growth.

The other key factor, says Yardi Matrix, is that the uptick in supply of high-end “Lifestyle” apartments has effectively “put a lid on rent growth in some metros, in some cases in tandem with a slowing rate of job growth.” The rate of rent growth remains higher for lower-cost “Renter-by-Necessity” units than their upscale Lifestyle counterparts.

That being said, the Yardi Matrix report notes that the recent deceleration is “far from being a sign that the sector is overheated. Fundamentals in most markets continue to be strong. Occupancies of stabilized properties are not far from cyclical highs, while the growing population coupled with strong job numbers is producing above-trend household formation that leads to demand for apartments.”

Twenty-six of the top 30 metros in the Yardi Matrix survey are above the 2.3% long-term average for rent growth, and the company expects that rate to continue in most markets. The markets in which rent growth has dropped swiftly—among them San Francisco, Houston and Denver—have issues with supply, affordability and/or job growth.

On a trailing three-month basis, the leading areas for growth in October were three California metros—Orange County, San Diego and Sacramento—along with Phoenix and Kansas City, MO. The metros in which rents trailed the most overall on a T3 basis were San Francisco, Seattle, Denver, Boston and Portland, OR.

Nationwide, multifamily rents were flat on a T3 basis in October, marking a 20-bp decline from September. Yardi Matrix says the data show a weakness in higher-end Lifestyle properties, where rents fell -0.2%. Rents in the working-class RBN segment grew 0.1% from the previous month.

Instant Insights /

Apt. Rents: Biggest Monthly Drop Since '13

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